Democratizing the Money Market

Just as technology is changing the way we live and work, it also affects the way we use and move our money. In this podcast, lawyer and bitcoin expert Patrick Murck of Harvard University tells us that financial technology, or fintech, is poised to revolutionize the way the world does business.

“The real story of fintech is that we are democratizing the creation and the administration of markets,” he said. “We see it in lending marketplaces and with ‘robo advisors’ who are allowing people to participate in markets in ways they could not before.”

While this financial freedom has its benefits, it also presents risks, says Murck. It might be less expensive to set up a money market, but transactions are “permission-less.”

“If money moves around the world the way email moves around the world, that would be a huge disruptive force throughout the financial sector,” he says. “There is no gatekeeper, nobody saying you can’t do this.”

Regulation remains a sticking point, since it has the potential to stifle technological innovation. Murck says so far there’s no clear road map for policymakers to manage this digital transition.

“From a regulatory perspective, if you can clearly articulate the principles that you are trying to achieve, maybe you can give some of the innovators a chance to meet your policy goals, without your having to go and write very technology-specific rules around them,” he said.

The other important issue, he said, is proportionality. If someone starts a financial business—takes deposits, lends money, and performs the core functions of a bank but with a customer base of only 10,000 people and assets of roughly $10 million, then it doesn’t make sense to regulate this startup in the same way as a large financial corporation.

“No one will ever have a fintech startup if regulatory requirements demand an asset management base of trillions of dollars,” Murck said. “If regulators are not willing to take a patient, technology-neutral approach, it will keep people from creating new companies—and that’s a shame.”

Murck acknowledges the risks to personal privacy associated with having transparent, accessible financial databases, but believes the need for caution and regulations should be weighed against the need for broader access and innovation within the financial sector.

“There’s certainly risks involved in trying to contain innovation—history has been unkind to those who have supported restraining innovation rather than harnessing it, he said. “But these transformations tend to be democratizing and wealth-building for societies over time.”

Our IMFBlog readers should also stay tuned for new analysis on fintech from IMF staff, that we plan to write about in June.